When I wrote The SmallIvy Book of Investing Book 1: Investing to Grow Wealthy, I wanted to create more than just a book on stocks or personal finance. I wanted to provide the blueprint for how someone with a normal job and a normal life could reach financial independence within their lifetime. A critical element for doing this, assuming you don’t start your own company or get a job with a million dollar salary, is to use assets such as common stocks to magnify the effort that you put in at your job. If you work hard and save all of your life, you might be able to pile up a quarter million dollars before you retire, which will be worth maybe $150,000 at that point due to inflation. On-the-other-hand, if you put money into investments religiously throughout your career, you can easily amass $10M or more and have protection from inflation.
The book starts out describing why assets are important and the types of assets you need during different stages of your life. It then goes into all of the different types of assets you should know as a small investor and the risks involved with each. You then reach the main part of the book, where it shows what you need to be doing at each stage of your life to build wealth and financial security, including how to develop a cash flow plan. It gives you the information you need to put yourself on the path towards financial independence that you can start implementing today. This includes how to make good financial decisions and avoid the bad ones that most people — people who stay in debt and stay dependent on a J.O.B. all of their lives — make. It then finishes with the strategy I call serious investing and some information on mutual funds.
I really want to get this information out to people who can use it, and therefore I’ve decided to offer the electronic copy of the book for free for the next few days. Just go to Amazon and download a copy and you can read it for free through Friday night. If you like it and would like to add it to your collection (which I think you will because you’ll want to refer back to it as you grow in your career), either buy a paper copy or and electronic copy after the free promotion. Please also think about providing a review of the book on Amazon if you do buy a copy. I’d love to hear what you think.
Disclaimer: This blog is not meant to give financial planning advice, it gives information on investment strategies, stock picking, and other matters relevant to the investor. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy , available in paperback and for Kindle, was written to be more than a book on the mechanics of investing. It is not a book on stock trading, which is the short-term buying and selling of stocks for a profit, or a book on investment strategies, because there are plenty of those out there in the bookstore. Finally, it is not a book on getting out of debt (although it does tell how to stay out-of-debt) because Dave Ramsey and Suze Orman have plenty of great books on that topic.
Instead it is meant to take over where Dave Ramsey and Suze Orman leave off. It answers the question, “Once you are out of debt (or even better, never into debt in the first place), how do you use the power of investing to make the money that you are making at your job grow to the point that you will never need to rely on your job to pay for your daily expenses?” I am convinced that 95% people making a middle-class income of between $50,000 and $100,000 per year can become financially independent in their forties or fifties and retire multi-millionaires. The other 5% are those who have some expense such as medical care for an elder or child that keeps them from saving and investing. For the rest of us, it is really all about the choices we make.
Rather than a book that most people would read straight-through, Book 1 is designed to be a reference throughout your life. Here is the way I would envision most people using the book:
Chapter 1, Reasons for Investing: The first chapter gives the basics on what assets are and the different types of assets that are used to grow wealth and then provide income. This is the fundamental concept you must understand if you want to become wealthy – you must acquire the right kind of assets to first grow wealth, and then maintain your wealth while generating the income needed for expenses. Everyone should read this chapter to understand the basics of wealth building.
Chapter 2, Investment Options – Background: This gives a brief summary of all of the different types of assets with which an investor needs to be familiar. This chapter will be skipped by most readers at first as you get your finances in order, but then used as a reference as you start to get into investing.
Chapter 3, Understanding Risk and Reward: This chapter starts with a primer on risk and reward, going into concepts such as time horizon and asset selection. This information is critical because you need to take sufficient risk (with commensurate levels of reward) to grow wealth, but you need to temper that risk properly by using time and selecting appropriate types of assets for your situation. The chapter then goes into the specific risks of different types of assets. This chapter can also be skipped at first, but the risks of specific types of assets should be studied carefully before investing in them.
Chapter 4, Matching Investment Risk to Stage in Life: This chapter talks about the overall strategy of acquiring assets appropriate to your stage of life. When you are young you should be buying assets that have a lot of room for growth. When you are older you should start shifting into some assets that provide income and have less risk. This chapter should be read right after Chapter 1 to learn the strategy.
Chapter 5, The Investment Strategy: In Chapter 5, the basic strategy is given with the actions taken at each stage of life summarized. This explains how you need to be managing your money and what you need to be doing with your investments to grow and then maintain wealth. This chapter would be read right after Chapter 4.
Chapter 6, Early Life Investing: Hopefully you are reading this book when you are between the ages of 16 and 24. This chapter talks about how you should handle your money during these early years to avoid going into debt and to set aside money for investing. It also goes into how to set up an investment plan and a cash flow plan. If you are reading this book while you’re still in your twenties, just dig right into this chapter after Chapter 5 and start your road to wealth.
If you are in your thirties, forties, or fifties, read this chapter as well to understand how to set up your investment plan and your cash flow plan. Hopefully you are already doing many of the cash management tips provided in the chapter. If not, consider them and maybe look at how you are handling your money and see if it is preventing you from effectively using your income. If you don’t have a few hundred dollars left over each month that you can direct to investing, you’ll need to manage your income more effectively to grow wealth. If you are in credit card debt or have other consumer loans besides a house payment, your first priority will be to pay down these debts. Using some of the money management tips will help, but you’ll be directing the savings you realize by using the tips to paying down debt until the debt is gone, then you can just keep using the money you were using to pay off debt to start buying assets.
Chapter 7, Mid-Life Investing: This chapter is for those who are in their forties and fifties. If you have already been investing for a number of years and have some assets built-up, you can use this chapter to understand how to start shifting into income assets to preserve your wealth. If you are new to investing at this stage, you may need to keep focusing on growth, but look to shift into income assets as you approach retirement age since you’ll need to preserve whatever wealth you have for when you are no longer earning an income from work.
Chapter 8, Late Life Investing: This chapter gives details on how to unroll your IRA and 401K plans and how to earn income from your assets in retirement. This chapter should be read by those in their late fifties and early sixties or later who have a portfolio and are looking to generate income for daily expenses. Hopefully you have a multi-million dollar portfolio at this point, but the same strategies would apply regardless of how much you have. The exception might be those who have very little – less than $500,000 in retirement savings and no other source of income like a pension plan. Because you really can’t afford to put any of your assets at risk at this wealth level, something like an annuity or laddered CDs with some of your money in an income fund might be the best strategy. Working with a professional financial planner is strongly advised for everyone, but it is especially critical when you have little margin for error due to a low level of savings.
Chapter 9, The Rules for Serious Investing: In Chapter 9, the serious investing strategy is spelled out in detail. This strategy describes how you should be investing with the funds you have outside of your retirement accounts if you want to try to beat the market returns using individual stocks. This chapter should be read right after chapter 6 by young investors or after Chapter 7 by mid-life investors. Some investors may wish to stay with mutual funds for all of their portfolio and accept market returns, which is just fine. Others may want to split their money and put some in mutual funds to at least get market returns and some in individual stocks to possibly add more growth. For those wanting to actually have a chance of doing well with investing in individual stocks, as opposed to simply investing for entertainment, this is the way to invest.
Chapter 10, Investing in Mutual Funds: This chapter provides information how to invest in mutual funds, both to supplement your individual stock investments in your taxable portfolio and IRA account and as your only choice in your 401k plan. Some investors may decide to only invest in mutual funds and therefore can skip Chapter 9 and simply study Chapter 10. Chapter 10 should be read by everyone and can be read right after Chapter 1.
Chapter 11: An Analogy for Building Wealth: Chapter 11 gives an analogy on using assets to build wealth that really puts the process into perspective for those who aren’t that into investing. This chapter can be read at any time.
I’m hopeful that those who buy and read the book will get a great deal out of it. I’m happy to answer any questions or clarify any of the concepts. Just leave a comment with your question. Also, I’m working on the second book, which will provide information on individual stock selection to complement the serious investing strategy. Hopefully it will be out in the next few months. Happy reading!
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
When I wrote The SmallIvy Book of Investing, my goal certainly was not to get rich (and believe me, I’m not). Instead, I wanted to provide a way for individuals and families to learn the secrets to becoming financially independent. You see, there are a lot of people who give information on budgeting and getting out of debt, such as Suze Orman and Dave Ramsey. There are also a lot of books on trading stocks, real estate, and all sorts of other things. There are even some good books on setting up your cashflow to become wealthy (see Rich Dad, Poor Dad).
The thing that was missing was a book that tells how to use investing to grow your wealth. The budgeting books have great advise for getting out of debt, but then you’re left treading water. The books on stocks are either the mechanics of buying and selling stocks, war stories from market professionals, or books advocating some strategy. I wanted to create a book that tells what to do next once you’re out of debt. I wanted to tell how to use investing to grow your wealth exponentially. I believe that any middle class person who is willing to make some minor sacrifices can become financially independent within their working lifetime. This book shows how.
What I wanted to create was a book that gave the whole plan. This includes things like the basics of different types of investments, budgeting and configuring your cash flow to allow you to invest, and the basics of retirement investing in 401K plans and IRAs. It goes well beyond this, however, giving the specific things you need to be doing at different stages of your life to become financially independent in your forties and then live a very comfortable retirement and be able to leave a legacy for your family.
I want to do what I can to end the behaviors that result in people getting to retirement age with nothing to show for it, despite having had millions of dollars pass through their hands during their working careers. I want people to use the money they make to provide protection for themselves and their families so that people aren’t one paycheck away from the welfare rolls anymore. Ideally someone would read the book when they were just starting college and follow the plan so that they would not need to experience the stress that comes from living paycheck to paycheck.
So that more people pick up and read the book, I’m dropping the price to $9.99 bewteen now and Christmas on the Create Space e-store. You can purchase a copy here. Copies will also be available on Amazon, although the price drop may not be reflected for a few days. Please consider buying a copy for a recent college graduate or high school senior, or maybe buying a copy for yourself. I truly hope it makes a difference in many people’s lives.
I’m excited to announce that the SmallIvy Book of Investing, Book 1: Investing to Become Wealthy is now available on Kindle for only $4.99. I designed this book for someone entirely new to investing who is interested in learning how to use stocks and bonds to build a portfolio and become financially independent.
The book goes way beyond the mechanics of investing, however. It provides a detailed blueprint of how to control your personal cash flow throughout your life to enable you to build wealth with the money you already make at your job. Most people don’t have the money to invest because they are spending all of their salary on car payments and interest on debt. Learn how to control your cash flow so that you never get into debt, and you’ll have the money needed to invest. You’ll then reach the point where you’ll be earning interest – enough to replace your salary – while all of your coworkers are paying interest.
Click here for more information on the Kindle version. If you would rather have a physical book, the paperback copy is also available on Amazon here.
It has gotten a slow start, but The SmallIvy Book of Investing is starting to see some sales. I’m excited to see people buying copies because I think it is very unique as far as investing books go. Rather than just talking about trading techniques, it gives a plan to apply at each stage of life for those who want to become financially independent. For example, it goes through starting retirement accounts (401k, IRA) and getting your budgets together when you are in your twenties so that you can have money for investing. When you are in your prime earning years (45-55) and starting to look forward to retirement, it talks about starting to unwind your investments and get ready for living on your portfolio when your paycheck stops. I’m really hoping some people in their late teens and early twenties find this book because if they start saving and investing early, they can really make a difference in their lives. Of course, even if you are starting 40, you’ll need to save more aggressively than a 20-year old but you can still retire with dignity.
It also provides the basics for the different types of investments. For example, it explains what a stock, bond, and option are. It also goes through the risks of each type of investment so that people who are new to investing know what they’re getting into. I sent a copy to my broker and he commented that it was nice to have a book that went through some of the more elementary topics since he finds there are a lot of people who need a primer. Money is a private matter in many families so unfortunately many young adults never learn how to handle money before they are out on their own.
Right now the Amazon price is $10.79, which I think is a great bargain. (Buy four and you’ll get free shipping!) If you do buy a copy, please let me know what you think. I’m just starting to work on Book 2 which will cover stock picking since that really needs a whole book on its own. Please also let me know if you would like a Kindle version. I haven’t done this yet because I wanted to see how well the paperback sells, but can get it onto Kindle if there is enough interest.
Thanks for reading the blog and thanks to those who have already purchased the book. Happy reading!
Finally, after a lot of writing and editing, the first SmallIvy Book of Investing is available for purchase. They say that there is a state of purgatory between finishing the writing on a book and getting it published. I can say that is definitely true from my experience.
The book covers a lot of the topics I cover on the blog. The central theme of the book is the Serious Investing idea, where large numbers of shares of a select group of companies are purchased and then held for a long time. The book also gives the basic on different types of assets, talks about how to set up your cash flow to get money to invest and grow wealth, and gives information on what you should be doing at different stages of your life to become financially independent. I’m hoping to sell a few copies, but I doubt I’ll make even minimum wage for the hours spent writing and editing it. My main goal is to help people learn to handle money and grow wealth. It is really within many people’s grasp to retire wealthy and not need to worry about money – they just do the wrong things.
It will be available on Amazon soon. Copies can be ordered currently from Amazon’s affiliate, CreateSpace for $14.99. To order, please go to this link.
Here’s a sample from the book:
Many people dabble in the stock market. Just like the gambler in Las Vegas, people spend their time tracking different stocks, buying and selling on the latest news, and generally not making much money at the end of the day. The 1990’s saw the rise of the penny ante day trader. These individuals would sit at home on their computers or go to rooms full of workstations where they would attempt to make money trading stocks as they went up or down by quarters or eighths of a dollar.
They had visions of trading during the mornings and then playing golf in the afternoons. It was shown that an individual would need to be right about 80% of the time to make a profit this way, after paying all the fees and commissions. Obviously very few people did well over time.
For some who have already made their fortune through running a business or other means, the stock market is merely a form of entertainment – a way to get a little excitement during otherwise bland days. These people are not investors and they will never really make much from their activities. It just gives them battle stories to tell at parties.
A true investor is like the fisherman on the American frontier back in the 1800’s. Unlike the modern angler who plays around with different lures and may throw back much of his catch, the frontiersman needed to catch fish to eat. He would do what was effective, like placing a net under a waterfall or building a fish trap, rather than what was sporting. He did what worked, even if it wasn’t particularly exciting.
Investing for growing wealth, what I refer to as serious investing, is not exciting. It is not the talk of cocktail parties and chit chat for the water cooler. It is doing what works and doing whatever is needed to put the odds in one’s favor.
A serious investor is not the favorite of the broker since he rarely trades. He builds up large positions in a few great companies and then holds for years or even decades. He buys companies, not stocks. The price patterns of stocks, e.g. trends, ceilings, floors, etc… are not important to him except perhaps as a way to get a better price on a purchase or a sale.
The serious investor saves and invests a portion of his income because he understands that it is worth the delay of gratification to have a steady stream of revenue that requires no additional labor. He understands compound interest and knows that to become wealthy, one must receive interest instead of pay interest each month. The serious investor first wants to use investing to grow wealth and thereby gain economic freedom. Once there, he then wants to be able to ensure a lifelong stream of income without losing the principle he worked so hard to build.
This book is for the small investor who is serious about growing and then maintaining wealth. It first presents a strategy for a young investor with a long time to invest (30-50 years) who has little money and wants to grow assets. This strategy is not the typical investment spiel about diversification, proper balances of stocks and bonds, etc… provided by many financial advisers. It is not that diversification is a bad thing, it is that diversification is designed to preserve capital, not grow capital. The goal of this book is to present strategies to beat the market, not just match it, at least while one is young and has little capital to protect.
The strategy presented for the new investor is to invest concentrated amounts in a few stocks that one believes are going to grow for years and years, and then hold them for years and years. One wants to catch the next Microsoft, IBM, or Cisco. One may get a few losers along the way, but one big winner will make up for a lot of losers. As gains are made, some of the money is diversified into mutual funds and spread among a greater number of stocks to preserve the gains.
The book then presents strategies for the investor later in life who has grown a substantial portfolio and would like to preserve it while gaining some income for living expenses. It is here that diversification is increased and cash is maintained to reduce the risk of market fluctuations affecting one’s income stream. Some exposure to equities is maintained even at this stage, however, as a hedge against inflation, but mutual funds are more important.
Information on stock picking is not included in this book, but will be included in a second book. Indeed, stock picking is worthy of its own book since there is a lot of information one must absorb before becoming a good stock picker. Even then it is a craft that is learned through experience rather than something that could be distilled down into a procedure.
Having dispensed with the preliminaries, let’s end this introduction with a brief summary of the reasons for wanting to become wealthy. It goes well beyond the superficial lifestyle portrayed by celebrities and rock starts. In fact, if the reader is looking to have lavish parties and buy tons of superficial things, he will be sadly disappointed. The lifestyle of celebrities is more due to their large incomes than their money management skills. People who attain and hold onto wealth have nice things but tend to be more frugal than the average NFL quarterback.
Instead, the reason for becoming wealthy is to have freedom and security. The ability to just pay for things when life’s little disasters happen. To have all the things that coworkers have, but to actually own them rather than rent them with a credit card and a home equity loan. To not always be living always on the edge of default if a paycheck is lost. To be able to choose a job you love, instead of working to support a lifestyle.
It is also ethical to live in an economically sustainable fashion. Indeed, there is virtue in the growth and maintenance of wealth and many benefits to society. In the very least, those who can take care of themselves don’t burden others. It is also those who are firmly on the shore who can best rescue others who are drowning. It is the people who have money who are able to support churches, charities, and neighbors.
I’ve been spending a lot of time this past week working on the final edits for the book. Hopefully I’ll be able to get it out and available for purchase early next week. In the mean time, please enjoy this “classic” SmallIvy Post from last year in case some of you missed it. (Yes, I know it is just like a lousy clip show when you’re waiting for a new episode, but please bear with me. The book will be worth the wait.)
Different stock picking methods have been popular through the years. Some people try to buy stocks they consider cheap and then sell when they get expensive. Others try to buy stocks that are going up and then step out before they reach a top. The first technique, called value investing investing, is buying low and selling high, the second technique, called momentum investing, is buying high and selling higher.
Today I thought I’d review a few of the strategies and plusses and minuses of each:
Momentum Investing: In momentum investing an individual looks for the hot stocks of the day – those that are going higher and everyone is talking about – and buys them. He then tries to jump ship before it reaches a top and fizzles. This is sometimes called “building castles in the clouds” since the support for these types of stocks is normally fairly weak and eventually they come crashing back to earth. The advantage is that the stocks to buy are fairly obvious – everyone is talking about them, like Apple until recently – and gains are generally made fairly quickly. The disadvantage is that one risks buying into a stock that is overpriced near a top. Usually the hot stocks come crashing down at some point.
Value Investing: In value investing, an investor finds stocks that are cheap relative to their “fair value,” which is calculated based on earnings and other factors. He then buys them while they are cheap and sells them when they start to get overpriced. The advantage is that he is buying low-priced stocks which may not get beaten down as badly during a market fall. The disadvantages are that one need to be very patient since it may take a while for the stock price to turn around and this strategy can be risky because some stocks are beaten down for a reason. Buying companies that go bankrupt is more likely with this strategy.
Buy and Hold: In this strategy, recommended by this blog, stocks are bought in companies that show potential to grow for long periods of time. These stocks are then held regardless of stock price until the fundamentals of the company change or the position becomes too large and a portion must be sold for safety. The advantages are that it is easier to find stocks that will do well over the long-term than it is to find those that will do well over short periods of time and one has a chance of picking a stock that will provide a very large return (in some cases turning a few thousand dollars into hundreds of thousands or even millions of dollars). A disadvantage is that one can also lose a lot of time and potential profits if one chooses a stock that does not do well. Another disadvantage is that when one does make a large profit, much of the value of the stock may be profit, resulting in a lot of taxable income when the stock is sold.
Dollar-Cost Averaging: Rather than a way of picking stocks, this is a way of buying stocks in which an equal dollar amount of a stock is bought at a regular interval – say every month or twice a year. Because an equal amount is purchased, more shares are bought when prices are relatively low than when they are high, resulting in a profit even when the overall price of the stock is fairly flat over the period. This is a good strategy for buy-and-hold investing and generally works best with a stock that has a dividend reinvestment plan that allows purchases of stock since one can therefore avoid most brokerage fees. The disadvantage is keeping track fo your cost basis for taxes. This could be eliminated with the passage of the Fair Tax.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.